Conservatives will let Clean Air Act die?

Today's National Post gives a great analysis of the trials and tribulations of the Clean Air Act over the last few months. According to the article, the Tories are likely to let the Clean Air Act die on the order paper and simply bring out regulations for Large Final Emitters using existing legislation. Article author John Ivison explains that two factors are at work. Firstly, a majority of Canadians are pro-Kyoto and want action on climate change. Perhaps more importantly, the special legislative committee on the bill have made a huge number of suggested amendments that make any eventual vote over an amended bill not worth it for the Conservatives.
In terms of eventual regulation targets for LFEs (with an accompanying emissions trading system), the article mentions a likely target of 20% below 2004 levels by 2020.

Tories having second thoughts on Kyoto

My comments: As far as I can tell (based on the Climate Action Network's background documentation and the legislative committee meeting transcripts I've seen), the Clean Air Act was largely a huge waste of time and would have possibly set up some serious regulatory loopholes. So good riddance, if its true that the legislation will die. Meanwhile, however, that 20% below 2004 levels target - by 2020(!) - looks pathetic. We need to have absolute targets in 2020 that are substantially below the Kyoto targets - the EU is recommending 15-30% below 1990 levels, and we probably need even tougher targets.
Personally, I am open to the argument that it is unrealistic to impose full Kyoto targets on industry for 2008-2012 because the timeline for adaptation is too short and industry was led to expect easier targets by previous government negotiations. Maybe we can let them off the hook a bit, something along the lines of gradually tightening targets that get us to 1990 levels by 2012, and Kyoto levels by 2014, for example. But there is absolutely no reason to set 2020 targets that are lower than Kyoto. Let's hope Harper keeps backtracking and backtracking...

Baird open to some international emissions trading?

A pro-international emissions trading piece at globeandmail.com yesterday mentions that Environment Minister John Baird has indicated he is open to including some international trading in his climate change plan. The piece doesn't offer further details, but does provide an overview of emissions trading and the opportunities involved in international trading.

Emissions trading: Like foreign aid, but better

My comments: Glad to hear it. International credits won't necessarily let us meet Kyoto, but they will get us a lot closer, more cheaply than 100% domestic reductions, and might help boost our international development aid budget to the UN's target for developed countries, 0.7% of GNP. (Canada is well below that, at 0.23% in 2003-2004; also well below the OECD average of o.42% - thank you, effortlessly available internet statistics)

Liberals grab FoE's proposal and run with it

Repeat after me - I love minority government. Sure, elections every year or two mean little gets actually done on climate change, but meanwhile the Liberals and Conservatives are one-upping each other to the point where radical environmental proposals transmogrify into mainstream policy!
In January, Friends of the Earth and Corporate Knights publicized a proposal to create an emissions tax at 30$/tonne CO2e for large emitters, with the catch that the tax revenues would actually be kept in special accounts for each emitter, who would have the option of getting the money back to spend on emissions reductions. Many, many orders of magnitude beyond any existing Canadian policy to date. I loved the idea but assumed it would be ignored within federal politics. (See my post for more details)
Last month, FoE and Corporate Knights released a more global proposal, with additional carbon taxes all over the place, tax shifting, the whole caboodle. Again, I thought, this is great, but we'll be lucky to get even absolute emissions limits for industry, let alone making them pay for every tonne emitted! (See my post for more details). Meanwhile, the Climate Action Network set out clear proposals for amending the Clean Air Act, including setting absolute targets for large emitters at our Kyoto target level ((1990 minus 6%). (Here's the post on that one)
NOW, the Liberals release their environmental plan, which first of all sets absolute targets for large emitters; even better, it sets them at our Kyoto target level. This is a much, much better idea than the intensity-based system that the Liberals built and the Conservatives are now recycling. (See this post for why). And on top of this, it brings in the FoE/CK idea of tax +emitter account, with a 20$/tonne tax with emitter accounts allowing emitters to reuse the money, with the tax rising to 30$/tonne in 2011. The key, unfortunate difference is that industry only pays for emissions beyond their targets, not for all emissions as per the FoE/CK plan. This is still an improvement over the old Liberal LFE system, which had a $15/tonne charge (much too low according to both environmentalists and economists). The Conservatives are rumoured to be sticking with the $15/tonne charge.

We'll have to see what the Conservatives come up with, but so far it looks like easy intensity-based targets starting in three years. If that's the case, the Liberal plan is much more effective, and fair (industry shoulders its share of the reductions burden). It'll be interesting to see how things go...

Meet Kyoto or Pay Up, Dion Tells Industry (Globe)
Liberal press release
Dymaxion World post on Liberal plan

Liberals eying absolute targets for large emitters?

Tiny story in today's online National Post - the Liberals are supposedly considering absolute targets for large final emitters as part of their election plan, as opposed to the intensity-based targets that the Conservatives (and previous Liberal governments) have been working on.

National Post story

My Comments: I'm very glad to see absolute targets being discussed for emissions trading, and I hope this is a bit more long lasting than Stephane Dion's brief endorsement of a carbon tax. I don't know if this is an issue that can grab the public's attention politically, and who knows at this point if the Liberals will make it back into power, but I am certain that absolute targets, even if extremely generous ones initially, are a better choice for Canada. They would provide more certainty in terms of our reductions achievements, and will make it much easier for our system to become integrated with the European Emissions Trading System and other eventual tradeable permit systems based on absolute targets.

Let's set up some markets - TD bank report

Toronto Dominion Bank released a report on March 7 calling for market based solutions for climate change. You tell 'em, my financially-inclined brethren! The 21-page report, "Market-Based Solutions to Protect the Environment" is 80% introduction to climate change policy options and 20% suggestions for Canada, with a focus on carbon taxes and emissions trading systems (ETS). It doesn't take a strong position on Canada's policy, but it does recommend:

• a mix of all policy tools, but a focus on price signals (most effective, least overall cost)
• following the polluter-pays principal (maximize efficiency and fairness)
  
• providing long term continuity so that emitters know what to expect
• setting up a domestic emissions trading system ASAP, with the idea of eventually linking to international carbon markets like the European Union ETS
  

The paper covers the classic tools and their advantages and disadvantages, going over

• command and control (can be effective but expensive if too interventionist)
• moral suasion (politically easy but ineffective)
• carbon taxes (the stuff of environmental economists' dreams and politicians' nightmares, but tax shifting will solve the problem if only the political will can be found)
• subsidies (politically popular, sometimes effective but huge free rider problems)
• cap and trade/ETS (an international inevitability; effective but easily diluted by politics (free allocation of permits, overly generous targets)

TD press release
TD report
Toronto Star coverage: "Carbon Taxes Are Coming"

My comments:
carbon taxes: I keep thinking that the idea of carbon taxes are forever marginalized in Canada, but then these reports pop up. Nice to see TD come out with this, even if it is, naturally enough, understated. It looks like the idea is dead at the federal level for now, but maybe if enough mainstream institutions start recommending revenue-neutral emissions taxation we will see provincial initiatives or a return to the idea in future federal debates. Or maybe the policy fairy will simply sprinkle all of our heads with externality-powder and we will wake up and smelllll the coffee...
emissions trading: I'm happy with their general recommendations (starting soon, auctioning permits, starting with a domestic system until international kinks worked out), but I'd like to see an opinion on intensity targets versus absolute targets.

More Alberta "Carbon Tax" madness

Yesterday's Calgary herald also calls the SGER penalty for emissions beyond regulated targets a carbon tax (see last two posts for more on this), and talks briefly about the politics behind it all, federally and provincially:

The goal is to paint Harper and Alberta green so the federal Conservatives can go to the polls this spring without having to attack the prime minister's own province.

There could still be fireworks if Harper's own green plan, coming soon, imposes rules tougher than Alberta's.

Alvarez says, "the biggest outstanding question right now is how the provincial and federal programs are going to interact."

Harper might push a bit harder than Alberta to show his own shade of green. But whatever he does, it's likely to be something Premier Ed Stelmach can accept after mild protest.

Go figure - a carbon tax crafted right here at home (Calgary Herald)

De facto Canadian carbon taxes

The Globe and Mail has a story today on Harper and Stelmach's recent announcements re carbon sequestration investments (the CO2 pipeline etc.), but what caught my eye was a reference to "Alberta's new carbon tax". They are referring to the $15.00/tonne charge on emissions beyond the targets included in the new proposed "Specific Gas Emitters Regulation" (SGER - say that ten times real fast). The article then goes on to say that the Harper Conservatives are also expected to adopt a $15/tonne tax on emissions beyond regulated limits.
I guess they are right to call it a tax (economists of the world, feel free to correct me on this), but it provides little of the benefits of a true carbon tax, since it will only apply on emissions beyond regulated targets - in Alberta's case, the first 88-98% of a facilities emissions will be
untaxed. I will remain indefatigably optimistic about this, since at least the words "Alberta's new carbon tax" are actually being bandied about matter of factly in a national newspaper - a vital psychological watershed in carbon tax acceptance. Next stop, 80-150$/tonne taxes on all fuels sold in Canada, followed smoothly by the abolishment of income taxes and free photovoltaic backpacks for the whole famdamily!

Ottawa advised to underwrite carbon technology (Globe article)
Get your (not so free) solar backpack today!

Alberta announces regulations for LIEs based on emissions-intensity

Alberta announced its new (proposed) Specified Gas Emitters Regulation (SGER) yesterday, part of Bill 3, a proposed amendment to the Climate Change and Emissions Management Act. SGER requires facilities that emit more than 100 000 tonnes of GHGs (CO2e?)/year to reduce their emissions intensity by 12% starting July 1 2007, or else

• buy Alberta-based offsets
• buy "emissions performance credits" from other emitters (who receive these credits in exchange for having achieved a lower intensity than their target)
  
• contribute to an Albertan technology fund at $15.00/tonne over their target

The Pembina Institute is quoted as saying that the proposal is "an absolute joke", while the Canadian Association of Petroleum Producers (CAPP) is saying that few if any of the 100 facilities covered will be able to achieve the reductions, meaning that they will have to pay hundreds of millions of dollars into the technology fund.
Some more details about SGER

• lower targets for new facilities: facilities opened in the last 8 years have lower targets initially - 10% if you are 8 years old, 8% if you are 6, down to 2% for facilities in operation four years or less
• Offsets may be open to double-counting: details on qualification, methodology, etc. aren't in place, but the only requirement in the proposed regulation that covers additionality is a condition that the emissions reduction used as an offset not have been required by law. This leaves open the possibility that reductions funded by other provincial or federal initiatives could be used as an offset within the SGER system.
• Baseline intensity will be an average of 2003, 2004 and 2005 emissions, except for new facilities, which will use their third year of operations
• No longer-term targets - the Minister can change targets and the legislation expires in 2014, but no schedule of targets is set out in the SGER legislation.
  

Alberta Ministry of the Environment press release
National Post coverage
Pembina news release

My comments: I have to agree with Pembina here - intensity targets, especially such low targets applied to an industry that has such huge growth, are barely going to slow down our GHG increases. (Pembina calculates that the SGER will allow a doubling of tar sands emissions by 2010 relative to 2003). Meanwhile, I'm wondering why Alberta has come out with this, especially so soon before the federal announcement. I assume its meant more as a bargaining chip/preemptive strike than a real system - Alberta's 100 emitters are too few to make for a liquid emissions trading market, and I don't think this system as it stands could be easily linked to larger carbon markets, if at all. I also don't think that the Albertan system could meet "equivalency" requirements for soon-to-be-announced federal system. The Federal Conservative strategy is likely to recycle the Liberal LFE system, with slightly more stringent targets, so we should expect 15% or higher intensity targets at the federal level. And the national system will also give access to offsets from across Canada and (maybe just maybe) international credits. So is this just an attempt to stake some ground, with an eventual goal of forcing reductions/exemptions from the feds? Or will Alberta make this a big issue to stand its ground on? Anyone with a better sense of Albertan politics (or devious political maneuvering in general), feel free to enlighten me.

Update on FoE / Corporate Knights proposal

Corresponded via email today with Toby Heaps of Corporate Knights re his proposal for meeting Canada's Kyoto targets. Here is what he had to say on capital investment cycles and emissions trading:

Given that many of the LFEs need to take capital investment cycles into consideration, do you think that that some of them will not be able to efficiently use the tax taken from them within the 3-year window provided?

The scale of capital raised would provide sufficient incentive for any rational facility to, at a minimum, commence capital projects to reduce emissions. It is true that order times and installation hold-ups would not allow for everything to be deployed in the immediate term. In order to access the industrial fee, a company would have to show how the lifecycle emissions add up. Lifecycle emissions can run as long as 20-25 years and beyond. As an example, if I am Transalta, my Sundance Generating Plant with no modifcation is going to cost me $485 million per year on the carbon fee. In a four year time span, that will add up to just under $2 billion. I would prefer to not leave that $2 billion on the table for the government to scoop up. Instead I would take it and make investments in either lower carbon forms of electricity production or retrofitting my plant, both of which would produce lifecycle emissions reductions will into the future.

It looks like the Conservatives are going to come out with something fairly similar to the LFE emissions trading system that the Liberal government had under development.

1.Why do you advocate your carbon tax proposal over emissions trading?

Toby provided a detailed comparison chart for his proposal versus emissions trading - summarized at the end of this post.

2. If the government does go with emissions trading, what changes would you like to see happen?

I would like to see industrial facilities with a strong price signal to make domestic reductions so that clean air benefits are coupled with GHG emissions, providing more immediate term benefits to Canadians. In the event that we are falling short of Kyoto targets as a country, I would like to see the government finance international renewable energy projects, with the solar cooker (see notes about solar cooker below) being a major component.

The Solar Cooker Story:

-2 billion people rely on wood to cook their food
-Each solar cooker saves roughly 3.5 tonnes of CO2e per year compared to a wood burning stove.

-Solar cooker can last 20 years

-Alcan has innovated a special material that id ideally suited for solar cookers

-Deploying 10 million family sized solar cookers a year would require 30-40 kt of aluminum

-Manufacturing 10m family sized solar cookers per year in developing nations at a total cost of $100-$200 per unit would cost $1-2bn per year and be generating 140 million tonnes of CO2e by end of year four

(note:presently, the CDM has a hold-up on granting credits for small scale projects on this level and they are working on ironing out the methodology--one area of ambiguity to clarify is whether the forests harvested for the wood are renewable forests of not--in most cases they're not)

CDM methodology on Solar cooker: http://cdm.unfccc.int/Projects/DB/TUEV-SUED1135345789.43/view.html

Comparison of the FoE/Corporate Knights carbon tax with emissions trading:

CK/FoE Zero Leakage Carbon Innovation Fund (see page 2 for desc.)		Cap and Trade
Price certainty – best for business and can be coupled with emissions standards for environmental quantity goals. Redeploys sufficient capital within businesses to pave way for green industrial revolution	Pro	Quantity certainty – best for environment. Does not provide leapfrog opportunities for green industrial revolution	Pro/Con
No ceiling for emissions reductions	Pro	Provides a ceiling for emissions reductions	Con
Provides double dividend to facilities that reduce emissions w/in 3 yrs and powerful incentive to invest in immediate reductions	Pro	All money spent on immediate emission reductions	Pro
Fits with part of Kyoto architecture as it allows government to make up shortfall through financing international renewable energy projects	Pro/Con	Fits with Kyoto architecture and minimizes costs via international trading	Pro
Couples emissions reductions and cleaner air together by requiring domestic industry to make reductions in Canada	Pro	Decouples domestic clear air from GHG reductions by allowing industry to purchase international credits	Con
100 per cent of money stays at facility (or corporate level in certain case). Keeps money in facility's specific account in province	Pro	Money stays in the private sector. Politically difficult to transfer money out of high emissions provinces	Pro/Con
Fair and firm price with flexibility to recognize energy-intensive export value-added industry's ability to pay. Does not punish early movers. Every company in a sector pays the same $ per tonne of C02e	Pro/Con	Flexibility to differentiate burdens according to ability-to-pay, but can punish early movers	Pro/Con
Simple, easier to explain, less vulnerable to lobbying	Pro	Complex, therefore more difficult to explain and vulnerable to being undermined by lobbying	Con
Requires business to take responsibility for emissions and provides them clear price to optimize around	Pro	“Requires business to take responsibility for emissions”	Pro
Risk of a run on stock prices of emissions intensive industry is reduced because clear price on carbon provides a number that analysts can use for discounted cash flow analysis, allowing them to place a cost ceiling on the effect of the carbon price system. Risk of run is also reduced as money paid for carbon fee is recorded on company's balance sheet as an asset.	Pro	Could spark a run on stock prices of emissions intensive industry because of uncertainty on the price of emissions	Con

CK/FoE Consumer Carbon Tax
Consumers are less sensitive to price increases than economic theory suggests	Con
Taxes on carbon content of fuels reduce consumer demand for high carbon fuels and increase it for low carbon fuels	Pro
Higher electricity prices increases consumer demand for efficient appliances and retirement of inefficient appliances	Pro
Access to zero-interest financing for geothermal and retrofits spurs mass deployment of money saving and energy reducing installations	Pro
Carbon taxes do not go into general funds, but instead raise billions to finance rebates on efficient vehicles, home retrofits and other supportive policies	Pro
Raises revenue for providing tax cut/rebate to cushion blow of higher prices for low-income families	Pro

Carbon taxes back on the table, at least for 48 hours

Very pleased to hear some more serious discussion of carbon/GHG taxation in Canada today. CBC's the Current had two pieces on carbon taxes today (see link below to listen), one of which was more or less a debate between Terry Corcoran (Financial Post Editor) and Andrew Van Iterson (Green Budget Coalition). The piece was spurred by last week's news reports that the Liberals were supposedly considering a carbon tax. Alas, the Liberals are now saying it was all a misunderstanding - they are considering pricing emissions, but not creating a carbon tax.

Link to Cnews story on Liberal rejection of carbon tax
Link to Friday's Globe story on Liberal development of carbon tax
Link to today's CBC discussion of carbon taxation

My comments: Very disappointed to hear the Liberals reject carbon taxes again. Dion must know better - he is clearly well-informed on environmental policy in interviews - so I guess this is just politics. The Conservatives, of course, were excoriating the Liberals for the idea, although I'm sure the economically-educated among them would admit that a revenue-neutral carbon tax is actually one of the cheapest options we have. I think they have made a mistake in using the carbon tax idea as a club to beat the Liberals with - they have cut themselves off from what could have been a policy coup. If the Conservatives had come out with a sensible tax shifting proposal, they could have had support from environmental groups and big business simultaneously.
On the plus side, the brouhaha led to more coverage of the idea, and I thought some very effective advocacy from Van Iterson. Corcoran's arguments really seemed like a series of red herrings to me - calling taxes "arbitrary" (all taxes are arbitrary) and attempting to paint a carbon tax as ineffective and morally self-righteous. He seemed caught off guard by the idea of revenue-neutrality, and actually ended up admitting that a revenue-neutral tax shift would actually have some merit.